Trump Top Advisor Flips on Him at Worst Time

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1:33Ben Meiselas:Yep, we said free. Oh, and did we mention the cafe? So what are you waiting for? Come see all that's in store. Visit the Wayfair store today at Edens Plaza and Wilmette. Wayfair, every style, every home. Is Donald Trump's new top appointee getting ready to betray him? Kevin Warsh, the chairman of the Federal Reserve, has indicated what's referred to as a hawkish slant. But that shouldn't surprise you because that's been Kevin Warsh's background. He defined himself as being someone not just with a hawkish slant, but as a hawk, somebody who tries to kind of control the joint responsibilities of the Fed by not being afraid to raise interest rates, which is fascinating because the guy that Donald Trump attacked, Jerome Powell, was known as being someone who lowered interest rates, more of an inclination to lower interest rates, to drive economic growth in Jerome Powell, who Trump appointed, by the way, during his first term, who Trump incessantly attacked.

2:37Ben Meiselas:And so Donald Trump may try to, you know, act like inflation is down and things are going amazing and everything is great. You know, but I want you all to pay attention to some of these board meetings at the Fed that are taking place. What Kevin Warsh is saying in his speeches regarding he goes, I'm not going to allow inflation to, you know, I'm going to make sure inflation hits that kind of two percent. And I'm going to do what I need to do in order to do that. Also, you know, Kevin Warsh on Friday announced a board to kind of look at the work of the Federal Reserve. And if you look at the board that he put together, you know, I'm not out here saying, you know, it's like the greatest thing, but he did not bring on voices that were purely like MAGA voices.

3:26Ben Meiselas:And so if you're paying attention to some of these signs that are going on behind the scenes, I mean, you are, I think, looking to see, I mean, more likely they're not raising interest rates. And it'll be fascinating to bring down inflation, although I think we'll have to see with these employment readouts what's going on there, because, you know, one of the other issues is you may need to reduce interest rates when you have employment, you know, losing all of these jobs. Let me show you what Donald Trump said when he was in the NATO summit in Turkey, where he said inflation is way down. Everything is great.

4:03Ben Meiselas:Prices are coming down. We're doing amazing, which we all know is not true. Here, play this clip. A couple of days ago, Walmart was cutting the price by 15 percent. How big of a deal is that for American customers this summer? So Walmart has agreed to cut their prices very substantially because things are going down. We're getting it down. We inherited very high prices. We inherited the highest prices in the history of our country. Or 48 years, to be exact. But I don't believe that. I think it's in history. So under Biden, they had tremendous inflation. Under the Democrats, we had tremendous inflation.

4:39Record-setting inflation. And now, inflation is weighed down. Everything is great. We have the prices are coming down. But we inherited, you know, they talk about different, they use different words to describe it. They had very high prices.

4:53Ben Meiselas:The prices are coming down. Which, of course, we know is utterly false. Everything about what he said when Biden left, inflation was about 3 % year over year. Right now it's at like 4.3, 4.5 % year over year and rising. The Walmart thing is basically made up. He pulled that same scheme for Thanksgiving and said they reduced the prices of Thanksgiving at 25%. That's like his go-to move is just trying to take advantage of like potential discounts being offered that really aren't that and then claim that that's somehow reducing inflation. Let me show you what Trump previously said about Kevin Warsh, the chairman of the Federal Reserve at the time that Donald Trump picked him as the new chairman of the Federal Reserve, where he said he certainly wants to cut rates.

5:36Ben Meiselas:Here, play this clip. Did Kevin Warsh commit to you that he will push to cut interest rates if he is confirmed. But we talk about it and I've been following him and I don't want to ask him that question. I think it's inappropriate, probably, probably would be allowed, but I want to keep it nice and pure. But he certainly wants to cut rates. I've been watching him for a long time. Well, if you've been watching him for a long time, a long time, you know, that's not necessarily the case. I mean, he, Warsh seemed to say what he needed to say to get the job and kind of came up with a thesis. Well, based on AI, I now feel we may need to reduce the interest rates in order to Berger.

6:12Ben Meiselas:That's not actually where he was historically. He was quite the opposite historically. And then, of course, when Walsh was getting confirmed, he was at his appointment hearing. He said all of the things that he needed to say to, you know, make sure that he wasn't on Donald Trump's bad side. I mean, just just watch the squirminess over here. Here play this clip. If you were to assign a professor Walsh were to assign a letter grade to the American economy today for the average working family, what grade would you assign? Senator, it was good to meet with you in your office. You know, in modern academic institutions, they give everybody A's.

6:51Ben Meiselas:So it's not a fair comparison, especially at elite universities. I know everyone gets perfect grades. Well, what grade would you give the economy? Well, if I gave a student anything other than an A, the dean would summon me to his office because I would have hurt his self-image. Well, the Americans that I talk to, particularly in the state of Georgia, who haven't had the benefit of attending some of these elite institutions, are trying to make their lives work. Yeah, mic drop right there. We'd go, oh, elite university. I mean, could you seem more out of touch to what the American people are saying?

7:32Ben Meiselas:And here is when Donald Trump was told about a month back that the Fed held the interest rates at where they were and that they may even raise the interest rates. Watch what Trump says. Let's play. Because honestly, it's unbelievable. Say it. Did you see the Fed's decision? They held rates today. It's all right. Whatever. And it looks like they might even raise them later this year. It's not clear. Do you have any. It could happen. I mean, it's hard to believe. It just keeps the country down. It's so unusual. But we have a very good guy over there now, so I'm guided by what he wants. Was this his first?

8:14Ben Meiselas:Yeah, I don't know. I saw a statement. It just came out. I want to bring in Justin Wolfers, leads Platypus Economics. Make sure you all subscribe to platypus economics on youtube justin you saw all of that as an economist you must be cringing right there um talk to us about uh you know where where we are right now and uh what you think's gonna happen yeah mate it just hurts in my bones and so it's i just want to explain to the audience literally what's happening inside my head right now which is i just watched a lying liar lie a lot and so the first thing that i want to do because i was raised that lying is wrong is respond to those lies and set them straight.

8:53But then what that would do is, Ben, you and I would be over here talking about that, not talking about the important reality, which is what's going on in the American economy. So I think the issue here really is what's going on at the Fed. And we've had now one meeting with the new guy, Kevin Walsh. Let me give folks at home a little bit of context. Walsh was on the Fed once before, between 2006 and 2011, which incidentally means he was there during the financial crisis. During that period, inflation was persistently too low. In fact, the Fed was sometimes worried that prices would start falling, which would cause what we call deflation.

9:29And the Fed worries about that. And unemployment was really, really high through 2009, 2010, 2011. So the responsible thing to do at a moment like that would be to cut interest rates. And that's what the Fed did. But throughout that period, Kevin Walsh was kicking and screaming. Every day he'd wake up and he'd think he could see inflation somewhere even when it wasn't there. There's a word economists have for this year is that we call someone like that an inflation hawk. And if they're totally crazy, we call them an inflation nutter. But so what we learned from that period is that Kevin Walsh is an inflation hawk.

10:03We also know that the president desperately wants low interest rates no matter what. And he's often talked about why. And it's because he wants to reduce the burden of the national debt. That's the opposite of an inflation hawk. And so there's this weird thing like why would President Trump end up appointing a hawk? Traditionally, hawks were in the Republican camp, but that's not Donald Trump's view of monetary policy. So then the question came up, is it maybe that Walsh has done sort of a deal with the devil? He said, I'll take the job and do whatever it is you want, Mr. President. There's no shortage of people in Washington who've made that deal.

10:42And if you watched his confirmation hearing, it was one of the most craven, disgusting things I've ever seen in which Walsh joked his way through very serious issues and cared more about not hurting the president's feelings than about either telling the truth or thinking hard about the American economy. And so coming out of that hearing, the real question that many of us had is, do we have sock puppet Kevin, the guy who's struck a deal with the president in order to get the job? Or do we have hawkish Kevin, the guy who's the opposite of what the president wants? He just had his first Fed meeting and it became very clear in that meeting what we got was hawkish Kevin, the guy who wants to eradicate inflation no matter what the cost.

11:22The guy who's quite comfortable with raising interest rates. So exactly the opposite of what the president wants. How quickly he rolls that out and whether that judgment remains correct, I think are very much open questions. But it does look like the president got rid of one guy, Jay Powell, who was doing the sort of stuff that President Trump likes, just not enough of it. And he may have gone and gotten a guy who, you know, does the exact opposite. Let me add one more thing. I have been impressed in the first days of what Walsh is doing. He's announced all his working groups. the people involved in those working groups are very very serious people very serious economists Walsh may not have been the guy that I would have chosen I tend to care a lot about unemployment he tends to care a lot about inflation but I'm impressed that this is a guy who at least has the qualifications and a degree of seriousness that you don't get out of a Fox News host and so you know we're at funny world we're in right now but we have someone who's in the vicinity of qualified in the vicinity of Sirius.

12:24And honestly, that's the best we could hope for right now.

12:27Ben Meiselas:What do we make of the dual mandate of the Fed, as it's called, when we're now dealing with rising inflation and we're also dealing with rising unemployment or decreasing jobs? And, you know, it always astonishes me, you know, as someone who's not steeped in economics. When I see a bad jobs report print and then the market's like, oh, yeah, you know, and I'm like, whoa, whoa, that seems to be a bad thing that jobs are being lost. Why are you? And then it's always explained to me, oh, well, that then means that there's a potential that the interest rates won't be raised as much or you may need to lower interest rates to deal with the job.

13:12Ben Meiselas:And to me, I also wonder if that thinking, though, where you have AI and you have other, you know, I guess the idea is if you lowered interest rates, that may encourage businesses to hire. I mean, you could correct me if I'm, I mean, as one of the thoughts in spur jobs. But also to me, I also think, but now businesses with AI are still firing all of these people. So I'm not even sure that brings back the jobs. And so let me first ask you, one, just about the dual mandate, but two, the very idea, and we're getting philosophical here, but I think people want these conversations. In 2026, is the dual mandate even the right way to think about things with AI and with jobs being replaced by these AI tools?

14:03I love that question. And the truth is you and I could spend two and a half hours talking about this. So let me try and give the brief answer and you and I can talk about it any other day of the week, I promise you, mate. Okay, so first of all, what is the dual mandate? Look, Congress tells the Fed what to do. Congress said to the Fed, you've got two jobs. One is to keep employment as high as you can or alternatively keep unemployment as low as you can. And the other is to keep inflation low and stable. That's Congress tells the Fed that. it. The Fed doesn't get to decide it.

14:36The way most of us are used to thinking about the world, most people, is they're used to thinking about the world in terms of what economists call demand shocks, which is when we have a recession, employment goes down and inflation goes down. Well, the easy way to fix that is if you cut interest rates, that'll cause employment to go up and inflation to go up. And if the economy overheats, that causes employment to go up too much and inflation to go up too much. And the easy way to deal with that is you raise interest rates, which pushes both of them back down. So most of the time, this dual mandate pushes you in the same direction no matter what.

15:10But I want you to realize most, many casual watches of the economy are used to thinking about the world solely through that lens. That lens is what we call demand shocks, right? A recession is when people don't want to buy much stuff and a boom is when too many people want to buy too much stuff. It's all happening on the demand side. What's happening right now, though, is what we call a supply shock. What's the supply shock? The supply shock is tariffs, which have raised the cost of doing business. It's the war in Iran, which have raised energy prices and once again raised the cost of doing business.

15:40Before that, there was a supply shock coming out of the Ukraine war as well. And the thing about a supply shock is it gives you two bad things at the same time. Demand shocks give you one bad thing at a time. Supply shock, the one we're in right now, it slows the economy. so you get lower employment and it raises inflation, which is what we're in the middle of right now. That creates a dilemma for the Fed. The dilemma is, well, do I go over here and try and raise interest rates to knock off the high inflation or do I come over here and try and cut interest rates to boost employment? That's a hard problem.

16:13Now I'm going to get next level here. I told you I'm very excited about this. The textbook says, if you just wait a while, all the effects of Iran and tariffs, they'll lead to higher prices, but they won't lead to prices continuing to rise. Remember, inflation is the rate of change of prices. And so that says, if you just wait it out, the inflation problem will go away. So inflation here is, to use a word, transitory. So that means the Fed maybe shouldn't raise rates to go after inflation. One more wrinkle, and this is the wrinkle that really worries the Fed. They say, yeah, I accept that textbook, but here's the problem.

16:48The Fed really wants not only to have 2 % inflation, it wants everyone to believe that inflation will be low and stable in the future. And the problem is that inflation has been above 2 % now for five years. So maybe we really ought to be over there worrying about inflation once again. Okay, that's the dual mandate. You asked me one other philosophical question, which is profoundly important, which is what should we tell the Fed to do. And I think that Congress, in all its wisdom, gave the Fed a very smart thing. It says, care about employment because it is definitely affected by what you do. And it says, care about inflation because that's also affected by what you do.

17:24This really matters right now because one of the first things Kevin Walsh did upon becoming Fed Chair is the Fed's first press release essentially said, I'm really going to lean hard on the inflation part. So Walsh has more or less said to Congress, look, I know you said dual mandate, but I'm really an inflation hawk, and I'm going to spend all my time talking about and thinking about inflation. So this question of what it is we should have the Fed doing, it's very much a live question right now.

17:55Ben Meiselas:Do you think Trump knows, I mean, does he know that? I mean, does he know that his guy, I mean, as you said, this guy, back when there was deflation, essentially, would see a small puddle and see a tsunami. Now there's a tsunami. And so what, you know, you must think, what is he seeing now when all of the fears that he had where people are like, whoa, whoa, whoa, you know, you're wrong. Now it's here. And so what do you see happens next? So the last two months have led, rather than tell you one economist's opinion, look, I'm happy to tell you mine, but I always think it's better to talk about what the market believes, because that represents the average of a lot of economists, some of whom might be smart.

18:39Let's be clear, are smarter than me. They just have worse accents. Before Iran and before WASH, everyone was expecting the Fed to cut rates through 2026. We went into Iran and that created that supply shock and we appointed WASH and now markets are expecting interest rates, no more interest rate cuts and it's quite likely the next movement in interest rates is up. and it's even possible that'll occur before the midterms. So a very sharp change in how interest rates are working. And I do want to come back to, you know, remember the President came to power saying, I will reduce the cost of living on day one.

19:18Well, higher rates, already the expectation that interest rates are going to be higher in the future, that's already being priced in by markets, which is to say that anyone who's out there trying to negotiate a new mortgage right now, you're going to get a much worse deal than you would have three, four, five months ago. And that's precisely because of the president's actions. So it's just another way in which the president has sort of said I'm for affordability and quietly done the opposite.

19:43Ben Meiselas:I want everybody to subscribe to Platypus Economics on YouTube to learn more. Also, Justin and I have a big announcement coming up on Monday about maybe something we're doing together. You'll have to stay tuned for that. I don't know what it is. I know I'm excited. Crikey, Ben, what could it be you know i think people may be seeing a little bit more of us together and these types of breakdowns and really getting the information from you though because this this this is probably the most critical issue this is what's affecting people's pocketbooks this is what you're these are the kitchen table issues that we need to be talking about um and the trends so thanks justin everybody subscribe to platypus economics and youtube search it hit subscribe here and let's get to 7 million subscribers here want to stay plugged in become a subscriber to our sub stack at MidasPlus.com.

20:32Ben Meiselas:You'll get daily recaps from Ron Filipkowski, ad-free episodes of our podcast, and more exclusive content only available at MidasPlus.com.

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